Property investment sector heading for bumper year

PUBLISHED : Thursday, 04 May, 2006, 12:00am
UPDATED : Thursday, 04 May, 2006, 12:00am

The property investment market is set to make this a bumper year, as a robust economy continues to fuel foreign institutional investor demand for commercial properties, says CB Richard Ellis (CBRE).

Turnover for transactions worth more than $100 million reached $26.5 billion with 57 deals closed in the first four months of this year.

This exceeded the $25.4 billion from the 101 deals closed in the first half of last year, the property consultancy said. The figures tracked only private-sector transactions.

Turnover on large transactions was $42 billion on a total of 158 deals for the whole of last year, the consultancy said.

'Despite a slow start, the real estate investment market in Hong Kong picked up strongly towards the end of the first quarter, thanks to the continued upbeat mood, the presence of a high level of global liquidity and positive spillover effects from the stock market rally,' said Rick Santos, the managing director of CBRE Hong Kong.

Hot money from institutional investors is flooding into large-lot property transactions in Hong Kong, Tokyo and Singapore, according to Mr Santos.

Among the large deals closed, there was a growing investor appetite for office properties that had been riding on surging rents and tenant expansion. The sector accounted for 42 per cent of the transaction value in the first four months of this year, against 29 per cent in the first half of the last year.

Retail properties made up 28 per cent of the transaction value, development sites 15 per cent and industrial buildings 6 per cent.

Morgan Stanley Real Estate Fund has been the most active market player so far. Last week, the company led a joint venture that bought the 23-storey Hang Seng Building in Central for $2.25 billion - the second-biggest deal this year.

The fund earlier bought the DBS Building in Central for $655 million and taken a majority stake in service apartments operator Shama from Macquarie Bank for $1 billion.

In China, office properties were the most sought-after assets by overseas investors, CBRE said.

'In reaction to the austerity measures imposed on speculative investment in the residential sector, a number of major investors have made a tactical shift into investment yield-accretive, income-producing properties such as offices,' said Andrew Ness, an executive director of research.

Mr Ness said investors were also betting on yuan appreciation to lift their return on office properties.

He did not expect the central government's move to raise its one-year lending rate by 27 basis points to 5.85 per cent last week to affect investor demand.